Research Update: Auto Supplier Faurecia 'BB' Ratings Affirmed On Hella Acquisition; Outlook Positive

France-headquartered global auto supplier Faurecia plans to acquire German supplier of automotive lighting and electronics solutions Hella GmbH&Co. KGaA (Hella) for €60 per share, valuing the company at about €6.7 billion, and expects to close the transaction in early 2022. In our view, the acquisition will significantly diversify Faurecia's product portfolio, add segments with higher technology content, increase its revenue base by about 40%, and lift its adjusted EBITDA margin by about one percentage point compared with our stand-alone forecast. We think these benefits offset our adjusted funds from operations (FFO) to debt weakening by 5–8 percentage points as a result of the transaction compared with our previous forecast of 25%-31% for 2022–2023. That said, the build-up of

...- France-headquartered global auto supplier Faurecia plans to acquire German supplier of automotive lighting and electronics solutions Hella GmbH & Co. KGaA (Hella) for 60 per share, valuing the company at about 6.7 billion, and expects to close the transaction in early 2022. - In our view, the acquisition will significantly diversify Faurecia's product portfolio, add segments with higher technology content, increase its revenue base by about 40%, and lift its adjusted EBITDA margin by about one percentage point compared with our stand-alone forecast. - We think these benefits offset our adjusted funds from operations (FFO) to debt weakening by 5¡8 percentage points as a result of the transaction compared with our previous forecast of 25%-31% for 2022¡2023. That said, the build-up of leverage is cushioned by the company's decision to fund about 1.3 billion of the purchase price with equity and explore supplementing future organic leverage reduction with selective disposals. - We therefore...

Research Update